(8) Project Management - Italy, 2003: the double whammy wine failure

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Compelling Event

Refosco is a wonderful red wine with its origins in antiquity -- and could be introduced to Germany.

Plinius the Ancient, who died in the eruption of Mount Vesuvius in 79 AD, related that the wife of the Roman Kaiser Oktavianus, Livia, loved this wine (in Latin Pucinum) so much that it was practically all she drank, to which some attributed her reaching the age of 86. Casanova* (1725-1798) also praised Refosco as being particularly good with fish.

Fast-forwarding two centuries, in the 1990s a major Italian industrialist became interested in the wine and purchased a 400 acre property in the area from which it stems, Friaul Julisch Venetien in Italy. (An acre is a shade over 4046 square meters.) He set up a high quality vineyard, one using only “the best of the best,” to produce Refosco. Soon the wines were winning awards.

Through a university contact, in 2003 I was asked if I could help introduce these Refosco wines to the German market. Italian wines of good quality are well known in Germany. In fact, the market may fairly be termed as saturated. This challenge sounded like a lot of fun from the outset. When I visited the vineyard the Italian industrialist, a man just radiating charisma and power, charmed me into forgoing a written contract. He was the owner of the vineyard, but the active management would be the responsibility of young family members.

Upon returning to Munich, I formed a small team to pursue this project. The part time work was being done on a performance basis - with no commitment fee to cover any minor initial expenses. My perception was that it would take about a year to find an entry point and begin sales. I understood "sales" to mean orders by wine wholesalers or by retailers with multiple outlets.

*Giacomo Casanova (1725-1798) was an adventurer and colonizer, alchemist and astronomer, stock speculator and con-man, gambler and co-founder of the French state lottery, diplomat and spy, economist and land reformer, libertine and rake, translator of Homer´s Iliad and poet who knew Voltaire, Rousseau, Benjamin Franklin, Richelieu, Friedrich the Great, kings and popes. During his lifetime he was most famous, not for seduction, but for a daring prison escape. His memoirs, in 4,500 pages, give one of the richest portraits we have of life in 18th century Europe.

Wham One, the first fatal mistake

The young Italian managers, not individuals with extensive business experience, or sophisticated MBAs either, were thinking in terms of entering the German market one case of wine at a time. There is absolutely nothing wrong with that. Apparently I was supposed to focus on trotting from one shop to another carrying sample bottles of wine in order to take an order for a case here, a case there. I did, in fact, try that, albeit half-heartedly.

In the second week of my part-time "trotting" an elderly wine shop owner took me aside. He told me that in 40 years he had never met a wine salesman who knew so little about wine. Obviously I had a sprinkling of book knowledge, but that was all. Did I even drink wine? I confessed that I did not. He told me I might sell a bottle here and a case there by accident. However I should realize I was competing with salesmen who drank wine all the time, who loved wine, who brought passion to wine. I had no chance.

What should I do? Well, if I knew anything about business, I should go after major buyers, the type of folks who cared about delivery by jet. I laughed and said I thought he meant JIT (Just in Time) delivery, and felt he was right.

My first serious move was an attempt for a strategic alliance. My target was the Austrian firm Riedel , a premier manufacturer of wine glasses with a world-wide distribution system second to none. Through another university contact I was able to get in touch with a member of the Riedel family who was based in New York to run the firm´s U.S. operations. I was directed to deal with headquarters in Austria. There I was warmly received. A member of my small team who was knowledgeable about wines would be allowed to accompany a senior Riedel representative at selected wineglass sales seminars in Germany -- at which she would be allowed to promote Refosco.

This "piggybacking" would be the start of a step-by-step approach to cross-marketing. Gradually Refosco would be granted access to Riedel´s distribution network (as appropriate). Eventually a wine glass specifically for Refosco would be made. The preliminary steps would only entail a few hundred Euros expense. Developing a custom wine glass would cost 10,000€ to 20,000€. Of course that would not have been undertaken until sales justified it.

Upon being informed of this “exciting opportunity,” the young Italian managers rejected it out of hand. Focus on selling wine, not on irrelevant alliances.

Why? Essentially a stranger arrives who is examined to see if he will make a satisfactory impression, going store to store as a salesman. This stranger, without so much as a "by your leave," without having sold a single bottle of wine, suddenly takes off to negotiate a strategic alliance on the company´s behalf. Just who does this fellow think he is -- as if I had barged into the CEO´s office and taken over his desk. Furthermore what was really needed was cash flow (= sales) now, this month, this quarter, this year -- then one can start thinking about building alliances with long term benefits.

Taken aback, but undaunted, I re-grouped. I decided that obtaining some market information would be useful. A highly competent MBA student of mine, (who eventually graduated summa cum laude), Clive Flynn, was already an experienced manager. He decided the project was interesting and prepared an excellent overview replete with statistics. The pie chart below is just one example. The report was for internal use only, and not sent to Italian management, which was interested in sales, not reports.

Wham Two, the second fatal mistake

Seven or eight months after the initial contact with the Italian vineyard not one single bottle of wine has yet been sold. From the Italian perspective, that was interpreted as meaning that nothing had been done, except for some E-Mail exchanges. The German team, armed with the statistics, had, in fact, been busy.

However we had not been busy at wine shops. Instead we had been pursuing enterprise sales with catering firms (with the one of Lufthansa heading the list, as it supplies many airlines), hotel chains, mail order catalogues, supermarkets and department stores. Enterprise sales are tough. Just getting the first appointment is a challenge. After that, they can easily take a year to negotiate. We were making some progress, but faced a "Catch 22." No one wanted to be first. If we could show successful performance with another major buyer, meeting delivery and quality standards, then come back and talk. Finally, that first major buyer surfaced -- which, we hoped, would lead to a domino effect.

That was thanks to a young woman I had invited to join the German team at its inception. Liking wine, she knew a fair amount about it, certainly much more than I. Also I was impressed that she had placed first in a graduating class of 200 at her university’s business college. She spent months negotiating a concession with the management of Karstadt, a national department store chain that organized concert series. (These are highly popular and include jazz and boogie-woogie sessions with internationally known pianists.) At the very last hour, Karstadt agreed to a remarkable deal.

Therefore the first ever request for product was not for a solitary case, but for a truckload of cases to be driven to Munich at very short notice indeed. The wine was to be sold at a series of concerts given by 11 pianists. The event would be attended by 2,000 people a day. Refosco would have one of only three concessions, and the only ground floor one. It was being provided at no charge, cost free! The less desirable upstairs locations were granted to a high-end tour and hotel chain and to an Austrian vineyard. In previous years the Austrians had been successful selling wine by the glass at the concerts, and therefore planned to come with two truckloads.

The young Italian management declined to send a truck of wine, indeed any wine at all.

Why? Too short notice was undoubtedly the main reason, along with a lack of credibility and reluctance to pursue a “non-standard” transaction.

The concept was to invite by telephone and E-Mail buyers of the leading wine wholesalers and retail chains in Munich to the concerts. They would enjoy them and get to see the reaction of the audience to the Refosco. It would be sold by the glass in the intermissions (making for a nice profit margin) – with bottles available for purchase as well.

Competition would be created among the wholesalers and retail chains as to which would be "allowed" to sell Refosco, and which one would take over the Refosco stand the next year, as the concerts were an annual event. Furthermore Karstadt organized similar events throughout Germany. If Refosco were well received at the Munich event, we could negotiate participation at others across the nation. We would orchestrate the national participation to win enterprise buyers.

The refusal to provide the wine for the concert series led to the project’s abrupt termination. As if that were not enough, it gets worse. I, depressed, assumed the young woman would cancel with Karstadt. She, depressed, assumed I would. Apparently the managers there had decided not just to provide the concession stand, but to go all out. Later I learned they had provided comfortable chairs and even decorated the stand, including having had a wonderful giant Refosco banner made to surprise us. And not only were we no-shows, we never communicated with them at all! Two thousand people a day stared, bemused, at the attractive, imposing, empty stand.

Let us review my multiple "double whammy" errors:

- Bedazzled by a mega-industrialist, who seemed to be a cross of Aristotle Onassis (1905 - 1975), the Greek tycoon and husband of Jackie Kennedy, and Anthony Quinn (1915 - 2001), the Mexican Hollywood movie star, I did not insist on a written contract.

- Noting that the Italian management was talking mostly about sales and not much about strategy, I happily assumed that the marketing strategy for Germany would be my bailiwick. Buy-in by the Italians would be superfluous, automatic. Somewhat later, I assumed they would be amazed and awed at the rapid winning of a potent strategic ally, Riedel.

- The rejection of the Riedel alliance stung and dismayed me, indeed left me dumbfounded and sputtering. I seriously embarrassed myself with Riedel. I had come on very strong about the cross-marketing potential. At first skeptical, after reflecting on it, management at Riedel had become quite keen on the idea. And then I was forced to cancel it, lamely muttering that the Italian firm was "not yet ready for that, and, not wanting to disappoint the prestigious Riedel, had decided to postpone cooperation." Needless to say, this outcome was not exactly "reputation enhancing" for me.

- I rushed headlong into proving that if only pure sales were wanted, then pure sales would be delivered. Even at this late date, the project goals could have been properly specified, an understanding of the Munich team’s responsibilities formally agreed upon and a timeline specified. None of that was done.

- After the Riedel debacle, I was intent on delivering results, reluctant to raise expectations, to make unrealistic promises. Therefore I did not keep the Italians informed about any of the repeated enterprise contacts, including the ones with the department store chain Karstadt. In fact, I patted myself on the back for having been discreet about all those interminable meetings with Karstadt. What I had thought would take this bright, enthusiastic young woman six or seven to eight or nine weeks to negotiate wound up taking her seven to eight months. That she was able to pull it off at all, let alone with exceptional terms, was remarkable.

- My approach to the project was as a part time enjoyable “hobby venture,” which perhaps could generate a few thousand Euro on the side. In other words, at the risk of being vulgar, my approach was “half-assed.” As a result, for instance, I never pushed on a German language version of the Refosco web site.

- The small Munich team’s expectations were very high for the concert series. ("The first domino is falling!") The let down was crushing – the months of negotiations, all for naught. The team rightly viewed me as the main reason for the failure. After all, communicating the marketing strategy for Germany to the Italian management had been my responsibility, not theirs.

- Termination was not smooth. The concert disaster was never analyzed. There was no exit interview, no “lessons to be learned.” This incident was not a “we failed, how can the German market be better approached in the future, regardless of whether we cooperate on it.” Rather each side viewed the other as being at fault. For my part, I did absolutely nothing to try to recover from this position.

Aftermath

The young Italian management team decided to change the marketing strategy for Germany from high quality, top of the line Refosco wines to compete instead in the low price table wine segment with another line.

Relevance

Avoid hobby ventures and pet projects! Do it right, (which certainly does not preclude delegating it away entirely), or do not do it at all. Looking at your business portfolio in terms of the hallowed BCG cash cow, dog, star, and question mark matrix, are any of the “question marks” becoming hobbies or pets? Dogs make wonderful pets, but not wonderful businesses - cave canem: beware the dog!